Germany’s private sector experienced a downturn in April, signaling renewed economic challenges for Europe’s largest economy. According to the Hamburg Commercial Bank (HCOB) flash composite Purchasing Managers’ Index (PMI) compiled by S&P Global, the index fell to 49.7 from 51.3 in March, dipping below the 50.0 threshold that separates growth from contraction.
The contraction was primarily driven by a significant decline in the service sector, which saw its PMI drop to 48.8—the steepest decline since February 2024. In contrast, the manufacturing sector showed modest resilience, with output growing for the second consecutive month. However, the overall manufacturing PMI edged down to 48.0 from 48.3 in March, indicating ongoing challenges.
Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, noted that while Germany’s export-driven growth model is facing serious challenges, the U.S. tariff policy has not yet caused a major slump in manufacturing.
The economic uncertainties have been exacerbated by sweeping U.S. tariffs introduced by President Donald Trump, which have disrupted Germany’s export-driven economy. These trade tensions have contributed to the decline in business activity and sentiment.
In response to the deteriorating economic indicators, the German government is expected to revise down its economic forecasts later this week, projecting stagnation in 2025 following two consecutive years of contraction.
The broader Eurozone is also feeling the impact of escalating trade tensions. The composite Eurozone PMI dropped to 50.1 in April from 50.9 in March, barely remaining in expansion territory. The services sector contracted to 49.7, while manufacturing showed minor improvement with a PMI of 48.7.
Analysts warn that the current U.S. trade actions may result in more severe production consequences in the coming months, as firms respond to weakening demand and increasing uncertainty. The European Central Bank has responded by cutting interest rates to 2.25%, its seventh cut since June, citing weakening growth and rising trade tensions.
As Germany grapples with these economic headwinds, the resilience of its manufacturing sector and the effectiveness of government measures to stimulate growth will be critical in determining the country’s economic trajectory in the coming months.
